In 2012, Anheuser-Busch In Bev NY, maker of Budweiser and other beer, sold debt

Question

In 2012, Anheuser-Busch In Bev NY, maker of Budweiser and other beer, sold debt of varying maturities. According to an article in the Wall Street Journal: "The three-year notes priced with a risk premium of 0.5 percentage point over comparable Treasury; the five-year notes at a spread of 0.8 percentage point to Treasury, the 10-year notes at 1.05 percentage points over Treasury".

1) What does the article mean by "comparable" Treasury?

2) What does the article mean by a "risk premium"?

3) Why does the risk premium increase the longer the maturity off Anheuser-Busch's debt?

Explanation / Answer

1) Comparable Treasury denotes the risk free interest rate which is a component of cost of note which (Cost of note) in addition, includes risk premium for period of maturity.

2) Risk Premium is the cost of bond over and above the risk free rate.

3) The more the maturity period of bond, the higher the risk premium since the interest rate risk is more in case of long term debt.

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